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How to Avoid Late Payment and Boost Cash Flow

Having worked in credit management through three recessions I know just how important it’s going to be to get real visibility on what is happening in your customers’ worlds.

Over the coming months we will no doubt see more businesses close their doors as the funding they’ve relied on dries up and they don’t have the sales to replace it with. Some of these could be your customers.

To assume that everything will carry on as it did before is a huge risk, one that your business may not survive.

It’s always advisable to implement the best possible practices in our businesses but now more than ever it is vital.

Credit Risk

When you extend credit to a business customer, you are basically taking cash out of your business and lending it to them.

This means that every new order is a risk to your business, whether from an existing customer or a new one and the key to post Covid success will be in being able to identify and manage that risk appropriately.

To do this you need information and robust policies, processes and procedures for client selection, onboarding, and credit control to protect your cash flow whilst growing your sales.

So how do you understand the risk?

Information

There are many sources of information about your existing or prospective customers such as:

  • Credit refence agencies
  • Companies House
  • Social media
  • Mainstream and industry specific news outlets
  • Your network
  • The customer!

What due diligence do you currently do on new and prospective customers?

Customer Selection and Segmentation

If you knew a customer was in danger of going bust, would you allow 30 days credit?

If you knew a customer had been paying their other suppliers very late, would you expect payment on time?

We all want to make more sales, but we also need to get paid on time for them.

The information you’ve gathered can help you decide which segment they should belong in (including refusal of the order).

By segmenting your customers by the level of risk they pose to your business you can say yes to more sales without having the business’s survival threatened by late or non-payment of those sales.

You can reduce the risk of each segment by having different terms for each, such as cash with order for the highest risk customers.

Do you have a one size fits all approach to managing your customers?

Onboarding

Think about the customer experience from them placing an order, through delivery, payment, and future marketing. The more you know about your customers the easier it will be to have meaningful communication and deliver excellent customer service.

So, before you start doing business with a customer you should have an onboarding process that includes collecting important information from your customer and recording it somewhere.

Do you have a process?

Credit Control

You need to be very clear on whose job it is to follow up with customers about payment and how and when that should happen.

Consistency is essential.

Customer’s circumstances can change overnight, particularly in times of economic uncertainty, and regular communication will help you to spot these changes early. You can then move them between segments and adopt the appropriate processes for that segment.

Do you have a documented credit control process? Does everyone in the business know what that is, and more importantly do they follow it?

Putting it into Practice

Policies, processes, and procedures need to be reviewed and updated at least annually to make improvements and keep them relevant.

They are not just documents to be created and then filed away never again to see the light of day.

They are an essential part of your toolkit to help you create sustainable cash flow and protect your investment in your customers.

So, what due diligence do you currently do on new and prospective customers, and what ELSE could you do?

If you think you could be doing more but don’t know what that would look like why not book a Power Hour with Nicki.

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